South Carolina Gov. Nikki Haley told state government retirees their pension system needs to be overhauled to stay in the black but that state promises to them will be kept.
The state's unfunded retirement tab now is at least $13 billion and the state doesn't know how it's going to pay, Haley said.
"What I want you to know is you are going to get everything that you were promised," Haley said to loud applause. "We've got to get a pension that's solvent."
She compared the system to a home with the owner only able to make interest payments.
"If South Carolina doesn't do something, we're going to have to go into foreclosure."
The pension system is turning in large investment gains coming out of the recession. And the $13 billion gap is an obligation that would be paid over 30 years.
Bob Borden, executive director of the State Retirement System Investment Commission told retirees that since July, the state's investment returns are up nearly 15 percent.
He also claims the state has regained all the losses from the stock market meltdown of 2008.
"We are back in the black," Borden said, also to loud applause.
Nonetheless, the state is still slightly behind the 8 percent long-term rate of return it needs, Borden said.
That has state pensioners worried about getting a cost of living adjustment this year after not getting one last year. While they are scheduled to receive an estimated 1.7 percent this year, a retirement board Haley chairs could nix that.
"We definitely need to get one this year and I don't care what she says," said Bobby Irick, 81, and a 35-year Department of Juvenile Justice veteran living in Columbia and fretting rising gas and food prices.
Legislators are considering changes to the system to cover costs.
On Thursday, a Senate panel will discuss a proposal requiring that new state workers use an individual savings plan without guarantees of future benefits, similar to a private sector 401(k) plan.
It's been far from popular as an option with workers: just under 20,000 people participate now while the state's primary pension plan covers more than 457,000 current, former and retired employees.
Irick doesn't like the idea of dividing current retirees and newcomers by pension options like the bill that lawmakers will discuss Thursday.
"That would be very bad," Irick said. "Everybody should be under one umbrella."
South Carolina last overhauled its pension system in 2007 to avoid running up liabilities made worse by a 28-year work requirement and years of cost-of-living increases that added to the state's pension gap.
"You can go back to 30-year retirement for new hires, certainly, said House Ways and Committee Chairman Dan Cooper.
A state Supreme Court ruling bars changes for employees who have vested in the system after five years on the job, said Cooper, a Piedmont Republican, who serves with Haley on the board overseeing state pension systems.
The 2007 overhaul law also ties cost-of-living adjustments to inflation and the state's ability to pay for them with investment gains.
South Carolina isn't alone.
States have been struggling to keep up with pension obligations and some have played out in national headlines lately, particularly in Wisconsin. Last year, Illinois, Maryland Missouri, Rhode Island, Minnesota and New Jersey were among states changing their pension laws to fill gaps, according to the National Association of State Budget Officers.
The states' problems aren't easy to compare.
Some didn't pitch in enough when they had money and they have different rates for employee contributions. For instance, South Carolina employees chip in 6.5 percent of their pay for pensions; Wisconsin workers pay nothing, but Republican Gov. Scott Walker wants them to contribute 5.8 percent.
Haley said to keep up with the current obligations, the state will have to come up with $100 million through the upcoming budget that taxpayers would have to cover. But Cooper said $32 million would cover the gap and could come from increased worker contributions.
"They could pick up the entire cost of that," said Cooper, a Republican.
That would amount to a pay cut and Cooper said while that's possible, it's a tough sell for legislators.